PBMs Grilled by Senators on How They Profit From Drug Sales

Kerry Dooley Young

April 10, 2019

WASHINGTON — Influential senators on Tuesday examined how pharmaceutical middlemen handle rebates for the Medicare and Medicaid programs, an inquiry made as part of their efforts to try shed more transparency on the process while trying to rein in rising drug costs.

The Senate Finance Committee held a hearing with executives representing five of the largest pharmacy benefit managers (PBMs). These firms are in the midst of fighting a bid by Health & Human Services (HHS) Secretary Alex Azar to compel them to more directly apply the savings from Medicare and Medicaid pharmacy rebates to consumers' pharmacy bills.

Insurers and PBMs say this change would raise costs for consumers, including those for premiums.

At the hearing, several senators argued that the current approach to handling rebates leaves patients with the greatest need for medications subsidizing those who are in better health.

"Now it's kind of a reverse Robin Hood, 'We're going to take from the sick and give to the well,' " Sen. Bill Cassidy, MD, (R-LA) said.

Sen. Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee, raised a similar objection. "It's not such a good deal for seniors who battle illnesses," Wyden said.

Wyden also accused PBMs of cloaking their operations "with greater secrecy than HBO is guarding the ending of Game of Thrones," referring to the popular cable series.

"If PBMs had clear, hard evidence proving that they're getting patients a better deal on prescription drugs, they'd be leafleting the countryside and shouting it from rooftops," Wyden said. "Instead, they work overtime to keep patients and taxpayers in the dark."

At a senate finance hearing in February, executives from large drugmakers said PBMs' policies prevent them from cutting costs of their drugs. With pharmaceuticals, PBMs stand to gain from greater use of more expensive products, according to the executives. Thus a drugmaker stands to lose access to customers through PBMs' preferred formulary lists if it reduces its prices, Merck CEO Kenneth C. Frazier told the committee.

At the Tuesday hearing, executives from PBMs denied this was the case. They instead said pharmaceutical companies decide how much to charge for their products. They also questioned whether the focus on their rebates was a distraction from the key issue of rising pharmaceutical list prices.

Many drugs have high and significantly increasing list prices without offering any rebates, said Mike Kolar, interim president and CEO of Prime Therapeutics, a PBM owned by nonprofit Blue Cross Blue Shield.

"Instead of rebates making drugs less affordable, the lack of rebates for certain drugs makes them less affordable," Kolar said. "In general, pharmaceutical manufacturers do not pay rebates on cancer drugs since plans typically do not implement traditional formulary management tools for these therapies."

In their testimony for the committee, Kolar and the representatives from other PBMs (Cigna's Express Scripts, CVS, Humana, and UnitedHealth's Optum) presented the senators with their suggestions at the hearing for lowering drug costs.

Derica Rice, executive vice president at CVS Health and president of CVS Caremark, said that copycat versions of biotech drugs, known as biosimilars, have the potential to save the health system as much as $54 billion over a decade — if only more of them were available in the United States.

"In the European Union, 53 biosimilars have been approved, while only 17 have been approved in the United States and most of them are not on the market," Rice said.

Prior Authorization

At the hearing, Wyden entered into the record a CVS prior authorization form that he said discourages physicians from helping their patients get a discount on evolocumab (Repatha, Amgen), a drug for hyperlipidemia.

Amgen last year said it would reduce Repatha's list price to about $5,850 per year, a 60% reduction for a medicine widely criticized for its cost. The prior authorization form cited by Wyden states that preferred Repatha has the national drug code (NDC) code 555, while the version with the NDC code 725 is not available. (Amgen confirmed for Medscape Medical News that NDC code 555 is the original price and NDC code 725 is the lower list price.)

The CVS form notes that these codes refer to the same product, which is made in the same facility, Wyden observed. Yet, CVS asks physicians to "answer detailed questions about the patient's medical history" if they want to use the product sold at a lower cost, Wyden said.

"Why is CVS, based on this form, putting arbitrary barriers between patients and a cheaper medicine?" Wyden asked CVS' Rice. "Is it because you get a bigger rebate on a more expensive drug?"

Rice said the "short answer" to Wyden's question was "absolutely not."

The list price in many cases may not actually reflect the medicine with the lowest cost, once discounts have been taken into account, Rice said. Focusing on the net price thus keeps costs low for insurers, providing savings that they then can use to lower premiums for consumers, he said.

"You are making the argument that consumers somehow, by your analysis, win on net price?" Wyden said. "Is that the argument you are making?"

"Yes, Senator," Rice said.

"To me, that answer is a prime example of our broken drug system favoring the big corporations rather than patients," Wyden said. "At a pharmacy counter anywhere in America, patients pay cost-sharing based off the list price."

"It sure looks to me like you all are taking deliberate action to pad your bottom line at the expense of patients," he added.

Wyden said lawmakers should swiftly pass legislation to try to help make drugs more affordable for Americans. The looming presidential and congressional elections will make it tougher to accomplish this next year.

"We've got to move with urgency. 2019 is the year to get this done," Wyden said. "We all know that in 2020 there are going to be a couple of things going on in America."

House, Senate, Bipartisan Action

There is a bipartisan enthusiasm at this time for at least introducing legislation meant to address drug costs.

The House Energy and Commerce Committee last week passed by a voice vote a series of measures related to drug pricing. These included a bill that would provide Congress' advisory commissions on Medicare and Medicaid with greater access to PBM data. Another four bills relate to tactics used by makers of branded drugs to delay generic competition.

The House Committee on Energy and Commerce also voted unanimously for the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act. This bill would establish a process by which generic manufacturers could obtain sufficient quantities of brand-name drug samples for testing, thus ending another tactic originating companies can use to delay generic competition.

In an April 4 statement, Senate Finance Chairman Charles E. Grassley (R-IA), who has been working for years to enact such a change, praised the Democrat-led House Committee on Energy and Commerce for the vote on the CREATES bill. He called it a "win" for consumers.

"Few proposals get unanimous support these days," Grassley said. "Although that bill is not identical to the bill I've sponsored in the Senate, the bill's movement shows that the committee is serious about addressing the pay-for-delay problem."

In opening the Tuesday Senate Finance hearing, Grassley noted that he and Wyden have begun an investigation looking specifically at insulin. "This will help us more broadly determine whether PBMs and manufacturers today are focused on patients or their own bottom line," Grassley said.

Still, it's unclear how much either Congress or HHS will change the law or federal rules regarding PBMs in the near term.

A PBM proposal from HHS Secretary Azar that wants to reroute rebates more directly to consumers drew more than 25,000 public responses before an April 8 deadline for comments, according to the regulations.gov website.

Among these were arguments against Azar's plan, citing concerns about higher Part D premiums.

Critics of the proposal pointed out that CMS' own analyses predicted that monthly premiums may rise if the rebates were more directly steered to customer's pharmacy purchases. HHS proposed to do this by altering federal anti-kickback statutes, known in industry jargon as "safe harbors."

Azar's plan "would negatively harm more beneficiaries than it would help due to the likely effects on premiums, the limited application of out-of-pocket savings, and the potential disruptions it could cause," wrote JC Scott, president and CEO of PBM trade group Pharmaceutical Care Management Association, in a comment.

Scott also said Azar's plan "would have a chilling effect on current and future value-based arrangements."

Azar did get endorsements from medical groups, although these arrived with caveats.

In a comment supporting the plan, James L. Madara, MD, CEO of the American Medical Association, urged careful consideration of "unintended negative consequences prior to and after finalizing these proposals." Among these could be higher premiums and increased Medicaid drug expenditures, he wrote.

"While the current system of negotiated price reductions can serve to drive prices higher, we see little incentive for drug manufacturers to lower prices under this proposal," Madara added.

And the PBM industry has its defenders in Congress, such as Democratic Sen. Sheldon Whitehouse, whose state of Rhode Island is home to the headquarters of PBM giant CVS.

At Tuesday's hearing, Whitehouse said he supports legislation that would allow Congress' advisory commissions on Medicare and Medicaid to get a deeper look at PBMs' operations. But he portrayed the congressional emphasis on the work of the middlemen as a dodge orchestrated by drugmakers to divert attention from the prices they set.

"I stand in awe of the pharmaceutical industry's jiu jitsu magic to have gotten their prime antagonists to become the focus of the problem," Whitehouse said.

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